Risks and Uncertainties DisclosuresProject Description: Current note disclosure requirements focus on various risks faced by state and local governments, such as those associated with financial instruments, including deposits, investments, securities lending, and derivatives; and risk retention, including risk pools. This project would address risks relating to the nature of operations, estimates, and vulnerability due to certain concentrations.
Added to Agenda: July 2020
- Accounting and Financial Reporting Issues
- Project History
- Work Plan
- Recent Minutes
- Tentative Board Decisions
- Project staff:
Risks and Uncertainties Disclosures—Project Plan
Background: General disclosure guidance in FASB Accounting Standards Codification® (ASC) Topic 275, Risks and Uncertainties, requires a nongovernmental entity to disclose risks and uncertainties relating to the nature of its operations, its estimates, and vulnerability due to certain concentrations. For some governmental entities, the long-term impacts of the COVID-19 pandemic might be felt across each of those categories. However, the potential need for this information by users of financial statements extends beyond the effects of the pandemic.
While the three broad categories of disclosure requirements in FASB Topic 275 are relevant to government, because of the differences between the public and private sectors, each category needs to be carefully considered in the context of the government environment. For example, seldom are governments exactly alike in the services that are provided to their stakeholders. The types of services provided introduce a different financial risk profile for each government. Therefore, information on the nature of operations is relevant to users of financial statements.
Due to the nature of the types of arrangements that have been addressed in recent standards (for example, pensions, other postemployment benefits, asset retirement obligations, and leases), the use of estimates have become even more prevalent in preparation of government financial statements. Regarding potential disclosures associated with the use of estimates, some governments currently provide the type of disclosure currently provided for in the private sector; however, other governments do not, which results in financial reporting inconsistencies. Disclosure requirements regarding changes in estimates are being considered in the project on Prior-Period Adjustments, Accounting Changes, and Error Corrections. Therefore, user outreach efforts will be coordinated to avoid unnecessary duplication and to ensure that user needs are being met with essential information.
As demand for government services increase while resources are being constrained, the disclosure of existing concentrations when the concentrations make the entity vulnerable to the risk of a near-term severe impact on resources is relevant to financial statement users. The events that could cause the severe impact will occur in the near term may be considered essential information for governmental financial statement users. However, outreach with those users is criterial to determine what information is actually essential. In the governmental environment, an entity may have a concentration related to a nonexchange funding source from another government (for example, a school district may obtain a significant portion of its annual revenue from a state). A government could have a concentration related to an exchange funding source (for example, a public power utility may obtain a significant portion of its revenue from the provision of electricity to a single customer or a small group of customers).
Accounting and Financial Reporting Issues. Current note disclosure requirements focus on various risks faced by state and local governments, such as those associated with financial instruments, including deposits, investments, securities lending, and derivatives; and risk retention, including risk pools. This project would address risks relating to the nature of operations, estimates, and vulnerability due to certain concentrations.
- Added to current technical agenda: July 2020
Topics to Be Considered
|July-August 2020:||Initial outreach with financial statement users.|
|September 2020:||Board deliberations on financial risks and uncertainties faced by governments relating to the nature of their operations and estimates used by governments that currently are not addressed in GASB literature.|
|October 2020:||Board deliberations on financial risks and uncertainties faced by governments relating to vulnerability due to certain concentrations that currently are not addressed in GASB literature and discuss draft of proposed standards section.|
|December 2020:||Discuss preballot draft of a proposed Statement.|
|January 2021:||Discuss ballot draft of a proposed Statement and consider for approval.|
|February–April 2021:||Comment period.|
|September 2021:||Discuss preballot draft of a final Statement.|
|October 2021 (T/C):||Discuss ballot draft of a final Statement and consider for approval.|
Minutes of Videoconference Meeting, July 6, 2020
The Board considered a project prospectus related to a proposed project on Risks and Uncertainties Disclosures. The Board discussed issues related to the project scope and agreed to add the project to its current technical agenda. The Board also agreed that the issues identified within the prospectus should be addressed by the project.